IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy PDF

Title IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy
Author Fasiha Rehman
Course accounting standards
Institution SKANS School of Accountancy
Pages 15
File Size 729.7 KB
File Type PDF
Total Downloads 53
Total Views 163

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Download IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy PDF


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12/3/2019

IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

After 2 months, I landed a new position of IFRS conversion manager with 70% pay rise. Clickour here to learn more By using website, Learn more you agree to the use of

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IFRS 3 Business Combinations (https://www.ifrsbox.com/ifrs-3business-combinations/) by Silvia (https://www.ifrsbox.com/author/sil via/)  CONSOLIDATION AND GROUPS (HTTPS://WWW.IFRSBOX.COM/CATEGORY/CONSOLIDATIONAND-GROUPS/), IFRS SUMMARIES (HTTPS://WWW.IFRSBOX.COM/CATEGORY/IFRSSUMMARIES/), IFRS VIDEOS (HTTPS://WWW.IFRSBOX.COM/CATEGORY/IFRS-VIDEOS/)

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IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

you IFRS 3 and manager with 70% pay After 2 months, I landed When a new should position of apply IFRS conversion rise. when IFRS 10? Click here to learn more What is the dierence between IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements? (//www.ifrsbox.com/ifrs-10consolidated-nancial-statements/) Today, I’d like to continue our “consolidation” series and after the introductory lesson (//www.ifrsbox.com/intro-toconsolidation-and-group-accounts/) and the summary of IFRS 10, let’s dive in the IFRS 3 Business Combinations.

What is the objective of IFRS 3? The objective of IFRS 3 Business Combinations is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its nancial statements about a business combination and its eects. Special For You! Have you already checked out the IFRS Kit? It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included. If you take action today and subscribe to the IFRS Kit,

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IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

After 2 months, I landed ayou’ll new position of IFRS conversion manager with 70% pay get it at discount! Click here to rise. check it out! (/courses/ifrs-kit) here toIFRS learn more MoreClick specically, 3 establishes principles and requirements for how the acquirer: Recognizes and measures the identiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; Recognizes and measures the goodwill acquired in the business combination, or a gain from a bargain purchase; Determines what information to disclose about the business combination.

What is the dierence between IFRS 3 and IFRS 10? Although it may seem that the IFRS 10 Consolidated Financial Statements and IFRS 3 Business Combinations deal with the same thing, that’s not the whole truth. Both standards deal with business combinations and their nancial statements. But while IFRS 10 denes a control and prescribes specic consolidation procedures, IFRS 3 is more about the https://www.ifrsbox.com/ifrs-3-business-combinations/

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items in the manager with 70% pay After 2 months, I landed measurement a new positionofofthe IFRS conversion rise. consolidated nancial statements, such as goodwill, non-controlling interest, Click here to learn more etc. If you need to deal with the consolidation, then you need to apply both standards, not just one or the other.

Is it a business combination or not? Any investor who acquires some investment needs to determine whether this transaction or event is a business combination or not. IFRS 3 requires that assets and liabilities acquired need to constitute a business, otherwise it’s not a business combination and an investor needs to account for the transaction in line with other IFRS. A business consists of 3 elements: 1. Input = any economic resource that creates or can create outputs when one or more processes are applied to it, e.g. non-current assets, etc.; 2. Process = any system, standard, protocol, convention or rule that when applied to an input(s), creates outputs, e.g. management processes, workforce, etc. 3. Output = the result of inputs and processes applied to those inputs https://www.ifrsbox.com/ifrs-3-business-combinations/

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After 2 months, I landed a newthat position of or IFRS provide canconversion provide a manager with 70% pay rise. return in the form of dividends, lowerhere coststoorlearn othermore economic Click benets directly to investors or other owners.

Apply the acquisition method Once the investor acquires a subsidiary, it has to account for each business combination by applying the acquisition method. Now you may ask: what is the dierence between the acquisition method and consolidation procedures? I would say that the acquisition method is simply a part of all consolidation procedures you need to perform. So when you prepare your consolidated nancial statements, you must start with the correct application of the acquisition method, and then continue with the eliminating the mutual intra-group transactions, etc. The acquisition method involves 4 steps: 1. Identifying the acquirer, https://www.ifrsbox.com/ifrs-3-business-combinations/

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2. Determining acquisition date, After 2 months, I landed a new position of the IFRS conversion manager with 70% pay rise. 3. Recognizing and measuring the identiable Click here toassets learnacquired, more the liabilities assumed and any noncontrolling interest in the acquiree; 4. Recognizing and measuring goodwill or a gain from a bargain purchase.

Let’s break it down.

Step 1: Identify the acquirer Most of the time, it’s straightforward – the acquirer is usually the investor who acquires an investment or a subsidiary. Sometimes, it is not so clear. The most common example is a merger. When two companies merge together and create just 1 company, the acquirer is usually the bigger one – with larger fair value. However, IFRS 3 provides the application guidance in its appendix, so you might need to check out.

Step 2: Determine the acquisition date The acquisition date is the date on which the acquirer obtains control of the acquiree.

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IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

After 2 months, I landed It a is new position ofdate IFRSon conversion generally the which themanager with 70% pay rise. acquirer legally transfers the consideration (=the payment for the Click here to learn more investment), acquires the assets and assumes the liabilities of the acquiree – the closing date. However, it can be earlier or later than the closing date, too. It depends on the contractual arrangements in the written agreement, if something like that exists.

Step 3: Recognize and measure the identiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree 3.1 Acquired assets and liabilities An acquirer or investor shall recognize all identiable assets acquired, liabilities assumed and non-controlling interests in the acquiree separately from goodwill. So please be careful, because sometimes, there’s some unrecognized asset in an acquiree, and an investor needs to recognize this asset if it meets the criteria for the recognition. For example, a subsidiary can have some unrecognized internally generated intangible assets meeting separability criterion. In such a case, an acquirer needs to recognize these assets, too.

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IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

After 2 months, I landed All a new position of IFRS are conversion manager with 70% pay assets and liabilities measured rise. at acquisition-date fair value. Click here to learn more Often, investors need to perform “fair value adjustments” at acquisition date, because assets and liabilities are often valued in a dierent way – either at cost less accumulated depreciation, at amortized cost, etc. However, there are some exceptions from fair value measurement rule: Contingent liabilities (IAS 37) (/ias37-provisions-contingentliabilities-contingent-assets/); Income taxes (IAS 12) (/ias-12income-taxes/); Employee benets (IAS 19) (/ias19-employee-benets/); Indemnication assets; Reacquired rights; Share-based payment transactions (IFRS 2) (/ifrs-2share-based-payment/); Assets held for sale (IFRS 5) (/summary-ifrs-5-non-currentassets-held-sale-discontinuedoperations/). 

3.2 Non-controlling interest Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. For example, when an investor acquires 100% share in a company, then there’s no non-controlling interest, because https://www.ifrsbox.com/ifrs-3-business-combinations/

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After 2 months, I landed the a new position of subsidiary’s IFRS conversion with 70% pay investor owns equitymanager in rise. full. Click here to learn more However, when an investor acquires less than 100%, let’s say 80%, then there’s non-controlling interest of 20%, as the 20% of subsidiary’s net assets belong to someone else. IFRS 3 permits 2 methods of measuring non-controlling interest: 1. Fair value, or 2. The proportionate share in the recognized acquiree’s net assets. Selection of method for measuring non-controlling interest directly impacts the amount of goodwill recognized, as you can see in the illustrative example below Step 4.

Step 4: Recognize and measure goodwill or a gain from a bargain purchase. Goodwill is an asset representing the future economic benets arising from other assets acquired in a business combination that are not individually identied and separately recognized. It is calculated as a dierence between: The aggregate of: The fair value of the consideration transferred; The amount of any noncontrolling interest; In a business combination achieved in stages: the https://www.ifrsbox.com/ifrs-3-business-combinations/

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IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

After 2 months, I landed a new position of IFRS conversion manager with 70% pay acquisition-date fair value of rise. the acquirer’s previouslyheld equity interest Click here to learn morein the acquiree; and The acquisition-date amounts of net assets in an acquiree.

The goodwill can be both positive and negative: If the goodwill is positive, then you shall recognize it as an intangible asset and perform annual impairment test; If the goodwill is negative, then it is a gain on a bargain purchase. You should: Review the procedures for recognizing assets and liabilities, non-controlling interest, previously held interest and consideration transferred (i.e. check whether they are error-free); Recognize a gain on bargain purchase in prot or loss. Consideration transferred is measured at fair value, including any contingent consideration. Subsequent change in a consideration transferred is accounted for depending on the initial recognition of the contingent consideration.

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IFRS 3 Business Combinations - IFRSbox - Making IFRS Easy

After 2 months, I landed Example: a new position of IFRS conversion manager with 70% pay Goodwill and nonrise. controlling interest under

IFRS 3 Click here to learn more Mommy Corp. acquires 80% share in Baby Ltd. for the cash payment of CU 100 000. On the acquisition date, the aggregate value of Baby’s identiable assets and liabilities in line with IFRS 3 is CU 110 000. Special For You! Have you already checked out the IFRS Kit? It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included. If you take action today and subscribe to the IFRS Kit, you’ll get it at discount! Click here to check it out! (/courses/ifrs-kit)  The fair value of non-controlling interest (the remaining 20% share) is CU 25 000. This amount was determined with the reference of market price of Baby’s ordinary shares before the acquisition date. I have calculated goodwill and noncontrolling interest using both methods mentioned in Step 3 and the results are in the following table. Please note the dierences:

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After 2 months, I landed a new position of IFRS conversion manager with 70% pay rise. Click here to learn more

Additional guidance to specic transactions Besides the above rules on application of the acquisition method, IFRS 3 provides guidance about the following transactions: A business combination achieved in stages: The acquirer shall re-measure its previously held equity interest in the acquiree at its acquisitiondate fair value and recognize the resulting gain or loss, if any, in prot or loss or other comprehensive income, as appropriate. Acquisition costs: Costs of issuing debt or equity instruments are accounted for under IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement (//www.ifrsbox.com/ias-39nancial-instruments-recognitionand-measurement/)/IFRS 9 Financial Instruments (//www.ifrsbox.com/ifrs-9nancial-instruments/). All other

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After 2 months, I landed a newcosts position of IFRSwith conversion manager with 70% pay associated an rise. acquisition must be expensed. Pre-existing Click here torelationships learn more If the acquirer and acquiree were parties to a pre-existing relationship, this must must be accounted for separately from the business combination. Reacquired rights A reacquired right recognized as an intangible asset shall be amortized over the remaining contractual period of the contract in which the right was granted. An acquirer that subsequently sells a reacquired right to a third party shall include the carrying amount of the intangible asset in determining the gain or loss on the sale. Contingent liabilities: Yes, acquirer recognizes a contingent liability in a business combination, contrary to IAS 37, even when the outow of economic benets to settle it is remote.After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognized in a business combination at the higher of the amount determined in accordance with IAS 37, and the amount initially recognized less cumulative amortization in line with IAS 18 Revenue

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After 2 months, I landed a new(//www.ifrsbox.com/summaryposition of IFRS conversion manager with 70% pay rise. ias-18-revenue/). Indemnication assets Click here to learn more Indemnication assets recognized at the acquisition are subsequently measured on the same basis of the indemnied liability or asset, subject to contractual impacts and collectibility. Indemnication assets are only derecognized when collected, sold or when rights to it are lost. Standard IFRS 3 prescribes a number of disclosures, too. Here’s the list of articles published on IFRSbox related to the consolidation and group accounts: Intro to consolidation and group accounts – which method for your investment? (https://www.ifrsbox.com/introto-consolidation-and-groupaccounts/) Example: How to consolidate (https://www.ifrsbox.com/consoli dation-example/) Example: Consolidation with foreign currencies (https://www.ifrsbox.com/foreign -currency-consolidationexample-ifrs/) How to make consolidated statement of cash ows with foreign currencies (https://www.ifrsbox.com/consoli

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After 2 months, I landed a newdated-cash-ows-foreignposition of IFRS conversion manager with 70% pay rise. currencies/) How here to testtogoodwill for Click learn more impairment (https://www.ifrsbox.com/impair ment-goodwill-ifrs-testing/) How the groups change (https://www.ifrsbox.com/ifrschange-group-composition/) Accounting for deemed disposal of an associate (//www.ifrsbox.com/ifrsdeemed-disposal-associateexample/) Podcast 002: How to treat dierent useful lives of PPE used by the parent and subsidiary? (//www.ifrsbox.com/qa-002-ifrsdierent-useful-lives-assetswithin-group/) Please watch the video with IFRS 3 summary here:

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